Let’s talk ROI for technology investments.

Return on investment (ROI) is how financial managers weigh the wisdom of their investments. But it has quickly become the parlance of the day for companies trying to determine the value of adopting a new application or building out their technology infrastructure.

ROI is pretty straightforward in the financial world. ROI is a formula that looks at the initial amount invested and calculates the return over a certain time period. It’s all dollars and cents.

But when you are calculating the ROI of a technology investment, the dollars and cents are not as black and white. There are factors you can look at to help you make the case for a new technology investment that does impact the bottom line – which your financial managers will want to know.

Here are a few factors to consider.

Cost-Benefit Analysis

When considering a technology investment, start with a cost benefit analysis.

The logical place to begin is to calculate not only the cost of the application, but any additional requirement for the infrastructure to support it – such as a new server. Also be realistic in the number of staff hours it takes to install the new software and train staff in its use.

Next, you want to make the business case for the investment. If you are adopting technology to grow your business, you must be able to present a logical case for that outcome. One of the best places to start is to track down any case studies that reflect the successful use of the technology for expanding business opportunities.

It’s equally as important to have performed an objective, comprehensive analysis of your operation and workflow as well. If you don’t know what problem or challenge your tech investment is intended to solve, you’re probably just chasing a great demo or a shiny new toy. All too often, this is the pathway to a sunk cost. Be sure to include the data indicating a bottleneck or inefficiency in your business case as well. It’s the most important reason for the investment in the first place.

Once you have nailed down costs and crafted a good narrative around the business case for making the investment, it’s time to do a careful analysis of the benefits the technology offers, including:

  • What percentage of the staff will be using the new application?
  • How often will the new application be used?
  • Will the new application save time and if so, calculate the actual time savings anticipated.
  • Will the time savings result in a reduction in staff needs and if so, calculate that number.
  • Will the time savings result in a shifting of hours to something more productive and if so, quantify that statistic.
  • Does this technology provide a solution to resolve a current problem, such as a bottleneck in the system, or data procurement or sharing?
  • How will this technology improve delivery of services to the customer?
  • Does the application streamline collaboration or communication among the staff?

Carefully packaging the data and information into a formal presentation will go a long way to helping your management team understand the efficacy of the intended investment.

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